These graphs were an eye-opener for me. For years I have been advocating policy measures to foster investment in and development of intangible assets. These include policy such as a knowledge tax credit and creating business assistance programs focused on intangible asset management (see "U.S. Policies for Fostering Intangibles").But the data presented here makes another important point: increasing investment in intangibles is not enough; policy must also look at the effectiveness of that investment in raising productivity. Why is it that the U.S. does so badly in the productivity return on its intangible asset investments compared to other nations (as point out in the first chart)? This will require a new line of research as to how intangibles actually work in boosting productivity in the economy.The McKinsey report has some insight on that with its finding about the effect of investment in "Knowledge Capital" versus "Human Capital." Their analysis shows that an investment in Human Capital generates a higher marginal return. But as I alluded to before, those two categories may be to gross for detailed investigation and may miss key elements. A more granular description is needed. In addition, the interaction between various types of intangible capital needs to be taken into account. As the McKinsey report points out, development of human capital is needed to realize any gains in other forms of capital.Obviously, much more work needs to be done. One starting place is a more refined set of metrics about investment in specific types of intangible assets. Current efforts to collect data on these investments needs to be expanded and augmented with better official data. Likewise we need a more detailed understanding of policies in those more effective countries. A great deal of cross country studies have been done on innovation policy. But I am not aware of any that look specifically at how investments in intangible assets translate into productivity increases.Sounds like we need to update and create a new (and rather substantial) research agenda.(Cross posted from The Intangible Economy)
These graphs were an eye-opener for me. For years I have been advocating policy measures to foster investment in and development of intangible assets. These include policy such as a knowledge tax credit and creating business assistance programs focused on intangible asset management (see "U.S. Policies for Fostering Intangibles").But the data presented here makes another important point: increasing investment in intangibles is not enough; policy must also look at the effectiveness of that investment in raising productivity. Why is it that the U.S. does so badly in the productivity return on its intangible asset investments compared to other nations (as point out in the first chart)? This will require a new line of research as to how intangibles actually work in boosting productivity in the economy.The McKinsey report has some insight on that with its finding about the effect of investment in "Knowledge Capital" versus "Human Capital." Their analysis shows that an investment in Human Capital generates a higher marginal return. But as I alluded to before, those two categories may be to gross for detailed investigation and may miss key elements. A more granular description is needed. In addition, the interaction between various types of intangible capital needs to be taken into account. As the McKinsey report points out, development of human capital is needed to realize any gains in other forms of capital.Obviously, much more work needs to be done. One starting place is a more refined set of metrics about investment in specific types of intangible assets. Current efforts to collect data on these investments needs to be expanded and augmented with better official data. Likewise we need a more detailed understanding of policies in those more effective countries. A great deal of cross country studies have been done on innovation policy. But I am not aware of any that look specifically at how investments in intangible assets translate into productivity increases.Sounds like we need to update and create a new (and rather substantial) research agenda.(Cross posted from The Intangible Economy)
Comments
Mary - I agree. The national data collected is the aggregate of the business investment in certain intangibles. It tells us where there might be an investment shortfall (such as in basic R&D) that requires a public policy action. It does not tell us where a specific company should invest. Having said that, the basic premise of my argument remains the same for both the nation/region and the company level: we need to determine where specifically investment in intangibles has the largest return rather than just attempt to raise the level of intangible investments in general.
Thanks Ken - I, too, have seen the data many times but hadn't looked at it in the way that you describe.
The funny thing is that this leads us back to investment. I have always maintained that we should be tracking investment not with an agenda of putting intangibles on the balance sheet (that might never work for a lot of good reasons). BUT millions (actually billions) of dollars are invested in intangibles every year but no one is tracking it or understanding it as an investment in the infrastructure driving success (growth, innovation, productivity, valuation, reputation, to name a few) of our organizations and our economies.
The fascinating data from the World Bank study on the Chilean wine industry showed the power of such investment (final report still hasn't come out but I'll alert everyone as soon I it does)
If we are going to advocate for a new line of research, I think it has to include a look at investment levels, not just at the national level but at the firm level as well.